T20, M40, B40 Household Income Update For 2025
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In 2023 Economy Minister Rafizi Ramli had suggested phasing out the T20, M40 and B40 income classifications which did not accurately reflect the actual situation on the ground.
While the current T20, M40 and B40 classification was based on fixed income, it does not accurately reflect the household disposable income capability of Malaysians. Using net household disposable income as a measurement will better reflect the financial realities of Malaysians in the low- and middle-income categories. For all the latest 2024 changes for income classification, see the last section below.
T20, M40 and B40 were used to describe the income groups in Malaysia. B40 represents the bottom 40% of income earners, M40 the middle 40% and T20 the top 20% (and now T15 as well). These groups are further broken down into tiers, such as B1, B2, B3, and so on.
How does DOSM arrive at these income bands?
Here’s what you need to know about the government moving from T20, M40, B40 classification to household disposable income categories.
The Department of Statistics Malaysia (DOSM) released its Household Income & Basic Amenities Survey Report 2022 last year, which provides updated figures for classifying these income groups. Note that these figures refer to household income (the average household size in 2022 was 3.8 persons), not individual income:
According to DOSM, in 2022, the mean (average) income across the household groups are:
B40 – RM3,401
M40 – RM7,971
T20 – RM19,752
Previous fixed income band classifications are as follows:
| Less than RM2,499 | RM2,500 - RM3,169 | RM3,170 - RM3,969 | RM3,970 - RM4,849 | RM4,850 - RM5,879 | RM5,880 - RM7,099 | RM7,110 - RM8,699 | RM8,700 - RM10,959 | RM10,960 - RM15,039 | More than RM15,039 |
Updated household groups by income share are as follows:
The household income report also raised Malaysia’s average poverty line income (PLI) in 2022 to RM2,589 from RM2,208 in 2019. DOSM also highlighted that Malaysia’s absolute poverty rate is at 6.2% in 2022. This is a decrease from the 8.2% recorded in 2021. This means that almost 6 out of 100 households in Malaysia still could not afford to meet basic needs for food.
These income classifications matter because they help the government determine how to allocate aid packages.
How much do T20, M40 and B40 households earn?
In line with the government’s aim to monitor net disposable income going forward instead of the T20, M40 and B40 classification, following are the breakdown by state and income class for this category.
The national mean (average) household disposable income in Malaysia in 2022 was RM7,111. But this average also varies by state. As you can see, the differences in income between each state can be huge.
Applying this to the household disposable income range, DOSM found there is no change compared to 2019 in the percentage whose household income is below RM5,000, while there was a slight increase in the percentage of households whose income range from RM5,000 to RM1o,000. There was also a slight increase in the percentage of households whose income range from RM10,000 to over RM15,000 monthly.
Is the income gap widening?
There’s a big income gap between the lowest-earning and highest-earning income groups. Is this gap getting worse? Let’s look at the facts:
1. Income inequality has declined since the 1970s
The Khazanah Research Institute’s (KRI) State Of Households 2018 report stated that household income in Malaysia has steadily increased from 1970 to 2018. Malaysia’s Gini coefficient (a measurement used to represent income inequality – a higher number means that the income gap is larger) fell from 0.513 to 0.399.
This means that in the past few decades, household income has risen, and income inequality has declined.
2. Why doesn’t it seem like income inequality has improved?
Okay, if official statistics say that income inequality has declined, why does it feel like the rich always get richer, and the rest of us are struggling to catch up? According to KRI, that’s because of the difference between the relative gap and absolute gap. For example:
- A low-income household earning RM1,000 last year triples their income to RM3,000 this year
- A high-income household earning RM10,000 last year doubles their income to RM20,000 this year
Last year, the high-income household would have earned 10 times more than the low-income household. This year, the high-income household earns 6.7 times the low-income household, lowering the Gini coefficient. This means that the relative gap has narrowed. But because the absolute gap (an earnings difference of RM9,000 last year vs RM17,000 this year) has increased, it doesn’t feel like inequality has improved.
3. There’s been an uptick in recent years
Although income inequality has improved over the past few decades, DOSM’s latest household report states that there’s been an uptick in inequality.
It increased to 0.407 in 2019, compared to 0.399 in 2016.
4. Household income is higher since 2022
The COVID-19 pandemic has majorly affected many Malaysians’ incomes in 2020 and 2021. The pandemic had caused many Malaysians to move into lower income categories but the situation has improved in 2022.
DOSM reported that median household income of Malaysians increased by 2.5 per cent in 2022 to RM6,338. While the household income is rising, it is at a lower rate compared to the pre-pandemic years. In 2019, household income rose at 3.9%.
2024 income updates (PADU, T15, subsidy cuts)
PADU
With that being said, the current government has decided to relook into the B40/M40/T20 classification as of 2024. This is mainly because the old classification is rather outdated and is insufficient in determining accurate income levels. For the most part, the B40/M40/T20 classification is oversimplified, not considering factors such as demographics, number of children, locality, etc. This results in a lot of exclusions in terms of subsidy and financial aid.
In order to minimise subsidy exemption errors due to the classification of salary categories, the government will instead take other measures, including an increased reliance on the Central Database Hub (PADU). PADU was also launched in early 2024. The database was created as a means to help the government digitalise its systems and reduce cost and wastage. However, the big game changer with the launch of PADU is that it will help the government with retargeting subsidies, ensuring that the distribution of subsidies are done in the fairest manner possible.
The first round of subsidy cuts using the PADU database was for diesel petrol in Malaysia. Diesel subsidies were removed and those who want to apply for the subsidy need to go through the Budi Madani diesel subsidy programme.
Taxing the ultra-rich – T15
The recent Budget 2025 revealed a lot of interesting plans that the government has in store for the coming year. However, one of the more interesting things discussed was the intention to increase tax revenue by implementing targeted subsidy cuts for the top 15% of income earners (T15). This move seeks to remove subsidies for petrol, education, and healthcare from the ultra-rich households while retaining these benefits for the B40 and M40 groups.
What is T15?
Generally speaking, the T15 income group refers to the top 15% of households by income in Malaysia. It builds upon the existing T20 framework and puts more focus on households earning approximately RM13,000 or more per month. The new subgroup was developed to help craft more targeted economic policies and reforms that reflect the economic diversity throughout Malaysia.
| T20 | T15 | |
| Definition | Top 20% of households | Top 15% of households |
| Income | RM11,820/month and above | Around RM13,000/month and above |
| Context | General income classification | Introduced in Budget 2025 for targeted policies |
Income threshold of T15
This newly defined income group is not without controversy. This income threshold of RM13,500 per month also tends to include plenty of middle-class families in urban and well-developed areas such as Kuala Lumpur.
Experts have voiced concerns over the new classification. Currently, the new T15 bracket fails to account for household size, locality, and cost of living. Households located in urban areas also tend to face higher costs of living. For example, those who live in Kuala Lumpur will find that RM13,500 will barely qualify them as wealthy due to the elevated living costs within the city.
Critics warn that the current approach risks putting more burden on middle-class families in urban arenas, with fuel costs alone potentially rising by approximately RM1,000 to RM2,000 per year.
New subsidy cuts (for T15) to be announced in 2025
The government will fully reveal the eligibility of the T15 classification, identifying those who will be excluded from targeted subsidies, including for RON95, in the first quarter of 2025.
In Budget 2025, the government revealed that RON95 subsidies amounting to RM8 billion would be reduced for the T15 group, while the retail price of RM2.05 per litre would remain for approximately 85% of the population.
New taxes and reforms
Budget 2025 also proposes several new tax measures in order to boost tax revenue, including:
- Progressive tax on dividends: A 2% tax on dividends exceeding RM100,000 starting in 2025
- Expansion of Sales and Service Tax (SST): Scheduled to begin in May 2025
- Removal of education subsidies: Targeting prestigious government-backed schools, which primarily benefit wealthier families
The government is reviewing income thresholds to include factors like locality and household size in order to ensure better alignment with the cost of living and reduce the financial strain on urban households.
Read More: All The Benefits You Will Get From Budget 2025 Based On Your Income Group
